The system change-focused Total Corporate Responsibility (TCR®) methodology provides the most advanced form of corporate responsibility (CR) and socially responsible investing (SRI). TCR can be used to develop high-performing SRI funds that produce greater positive environmental and social impacts than any other type of SRI approach. This article discusses the TCR approach and benefits, the critical need for economic and political system change, and how TCR can be used by the corporate and financial sectors to drive beneficial system changes in broader society.

Over the past 15 years, CR and SRI have gone mainstream. Nearly every major corporation has some type of sustainability strategy. And trillions of dollars are invested through various environmental, social and ethical screens. Corporate sustainability leaders often gain substantial financial and competitive benefits, including enhanced reputation, market access, customer satisfaction, and ability to attract and retain a high quality workforce. SRI funds frequently outperform conventional funds because they take financially relevant environmental and social issues into account, issues that frequently are ignored by traditional financial analysis.

However, in spite of the widespread corporate and financial sector focus on improved sustainability performance, environmental and social conditions are deteriorating rapidly in many regions. This poses a major threat to businesses, investors and society overall. One might ask, if CR and SRI have gone mainstream, why are environmental and social conditions still declining?

The answer largely is that these movements are not focused on the main cause of declining environmental and social conditions – flawed ideas and systems. The CR and SRI movements largely are focused on encouraging corporations to voluntarily reduce negative environmental and social impacts. (Social includes product safety, labor, customers, suppliers, communities, government relations and foreign operations.) Consultants, nonprofit organizations (NPOs) and other sustainability advocates encourage companies to voluntarily reduce negative impacts by making the business case for impact reduction.

The focus on voluntary, unilateral impact reduction is the main problem in the CR and SRI areas. Very generally speaking, companies can voluntarily eliminate about 20 percent of short-term and long-term, tangible and intangible, negative environmental and social impacts in a profit-neutral or profit-enhancing manner. Beyond this point, if companies mitigate impacts, when competitors are not, costs frequently go up relative to peers. If companies continue down this path of voluntary corporate responsibility, they will put themselves out of business. Beyond a certain point, voluntary corporate responsibility equals voluntary corporate suicide.

This is a system problem, not a company problem. Our flawed economic and political systems create a situation where all companies, without exception, must degrade the environment and society to survive. This ultimately will hurt businesses and investors because there is no economy or business without a life-sustaining environment and society. Our flawed systems unintentionally place business in conflict with society. Being in business and acting in a fully responsible manner are mutually exclusive.

Corporations are man-made, nonliving entities, like machines. They do what they are designed and incentivized to do. Economic and political systems establish the rules of the game. They largely constrain and compel corporate behavior. These systems strongly compel companies and broader society to place ever-increasing profitability, shareholder returns and economic growth before all else. But these goals should not be the primary measured and managed focus of business and society in a democracy. The first priority must be survival (because everything else is irrelevant if we are dead). The next priority should be maximizing the long-term well-being of society (i.e. producing the greatest possible good for the greatest possible number of current and future citizens).

Current systems do the opposite of this in many ways. They are driving widespread environmental degradation, poverty, inequality, unemployment, hunger and suffering in the US and around the world. In other words, our economic and political systems largely are doing the opposite of what they were intended to do. Why? The main reason is myopia (i.e. shortsightedness, the failure to think systemically).

In reality, everything in human society is part of the interconnected whole Earth system. But the conscious human mind did not evolve to understand this whole system at once. As a result, we often break society down into parts (economic, political, social), and then study the parts without adequate reference to the whole system that contains them. Economic, political and other theories and systems are developed in a theoretical vacuum that ignores much of reality. As a result, these myopic ideas and systems produce unintended consequences, such as environmental and social degradation.

The solution, as Einstein implied, is to think at a higher level – the whole system level. Virtually all human environmental, social, economic and political problems result from flawed, myopic thinking and the flawed systems that result from it. This is an extremely empowering situation. It means that we control our destiny. Aside from natural disasters, problems are not imposed on us by some external force or innate human weakness. Major human problems result from flawed thinking. They can be resolved through rational, reality-based, whole system thinking.

System Change

Where do we begin? There is no single answer. Many actions are needed at the individual, company, regional, national and global levels to achieve a sustainable and truly prosperous human society. However, great opportunity for rapid, positive change lies in the corporate and financial sectors. Business is powerful and innovative. It exerts strong influence over citizens, government and society. We can harness the power of business to produce huge, positive changes in society.

To achieve this, we must remember what business is, and what it is not. Corporations are tools designed to do certain things. Like washing machines, automobiles and other tools, they have no consciousness or morality. Morality does not apply to non-living entities. Currently, we myopically design corporations to frequently put shareholder returns before the environment, customers, employees and broader society. When there are conflicts between shareholder returns and these factors (as there often are), corporations are structurally required to put shareholder returns first. Widespread environmental and social degradation largely is not caused by lack of morality or poor management. Managers and companies do what they are incentivized and designed to do. Economic and social degradation results from flawed systems and myopic corporate designs, which result from flawed, myopic thinking.

This situation illustrates the need for a major refocusing of the CR and SRI movements. As noted, these movements largely are focused on unilateral, voluntary corporate action. But companies cannot mitigate roughly 80 percent of their negative environmental and social impacts. In other words, nearly 100 percent of the focus of CR and SRI is on about 20 percent of the problem. Eliminating impacts that cannot be unilaterally mitigated requires system change. To achieve sustainability and real prosperity, the focus of the CR and SRI movements largely must be shifted to improving flawed economic, political and other systems.

The business case for system change is strong and clear. Flawed systems compel companies to degrade the environment and society. This ultimately degrades businesses and investors. As the human economy and society expand in the finite Earth system, negative corporate impacts return more quickly to harm companies, often in the form of reputation damage, boycotts and rising mitigation costs. Proactively reducing negative impacts and preventing problems frequently is less expensive than cleaning up problems and suffering reputation and other damage. Companies have a strong and growing incentive to do all they can to minimize negative environmental and social impacts. System change is the only way to fully mitigate impacts, and thereby maximize the well-being of business and society.

How do we shift the focus of the CR and SRI movements to system change? The most efficient and effective means probably is to use existing mechanisms. Environmental, social and governance (ESG) ratings are one of the most important mechanisms and activities in the CR and SRI areas. The ESG rating process is a primary driver of CR and SRI. Many companies and NPOs provide ESG ratings. To produce ratings, organizations first must develop rating models.

Developing models requires defining leading-edge corporate sustainability or CR performance. Key aspects of superior CR are used as metrics or measurement points in ESG rating models. The model and its metrics serve as a roadmap for companies. They identify which actions and structures are needed to achieve superior CR performance. The financial community uses ESG ratings to develop high-performance SRI products and funds. This puts pressure on companies to achieve superior ESG ratings. High ratings can provide several corporate benefits, including enhanced reputation and stock price (through increased inclusion in SRI funds).

In summary, ESG ratings define leading CR. This mechanism can be used to strongly promote system change. Current ESG ratings mostly focus on voluntary impact mitigation (about 20 percent of the problem). System change is the most important sustainability issue. It allows the remaining 80 percent of negative impacts to be mitigated. To achieve sustainability, ESG definitions and rating processes must be expanded to include a heavy focus on system change. This is exactly what the TCR approach does.

Total Corporate Responsibility

Developed in 2003, TCR identifies and measures important corporate system change activities. The approach represents the next generation of corporate sustainability ratings. It evolves the ESG rating process into a form that has the potential to achieve sustainability (i.e. by enabling 100 percent impact mitigation). The name Total Corporate Responsibility emphasizes the importance of fully mitigating all negative impacts (i.e. acting in a fully responsible manner).

The TCR approach defines and measures two broad levels of system change – mid-level and high-level. Mid-level system change involves system changes related to industry sectors, stakeholder groups, and specific environmental and social issues, such as climate change. High-level system change refers to evolving overarching economic, political and social systems into sustainable forms.

Over the past 10 years, a growing number of companies have gotten involved in mid-level system change. Walmart, for example, has worked extensively with suppliers, NPOs and other stakeholders to reduce negative environmental and social impacts in several industry sectors. Mid-level system change is important. But high-level system change is by far the most important sustainability issue.

Myopic economic and political systems essentially force companies to rapidly degrade the environment and society. These systems grossly violate the laws of nature. They absolutely will change. Not changing it is not an option. Reality and nature will not allow flawed human systems to exist indefinitely. The American and French revolutions, end of slavery in the US, collapse of communism in the Soviet Union and many other large-scale system changes throughout human history show that all human systems that violate the laws of nature (including the natural laws of equality and fairness) end, usually by collapsing.

Our only options are voluntary or involuntary system change. Involuntary change (i.e. collapse) would cause unprecedented suffering and disruption because human society is larger and more interconnected than ever. Voluntary high-level system change is the most important action needed in human society. It is the only way to reverse rapid environmental and social degradation and achieve sustainability and real prosperity.

TCR is based on whole system thinking. It seeks to promote an evolution in business consciousness. The model is based on three principles – interconnectedness, actualization and posterity. Interconnectedness emphasizes the reality that companies are parts of larger environmental and social systems. They ultimately cannot prosper if these larger systems are not stable and healthy. Actualization emphasizes that the primary purpose of business in a democracy should be to promote the well-being of society. Reasonable investor returns result from doing this well. Posterity emphasizes that the most important goal of current generations is to ensure the survival and prosperity of future generations. From a business perspective, this means that companies should limit any activity that threatens future generations.

To assess the effectiveness of impact mitigation, analysts must understand companies’ negative impacts. This enables them to determine if mitigation efforts are effectively focused on the most important impact areas. To enhance their reputations, companies sometimes engage in greenwashing (i.e. portraying themselves as proactive on sustainability, when they actually are not). Understanding impacts enables analysts to see through greenwashing and identify if companies are effectively mitigating impacts, for example, by selling low impact products, taking better care of employees and reducing pollution. The frame of reference for conventional CR and ESG rating mainly is companies’ negative impacts and effectiveness in mitigating them. Leading CR largely involves voluntarily, proactively and effectively mitigating the most important impacts. This is the standard against which companies are rated.

The frame of reference for system change rating is vastly larger. To adequately assess system change activities, analysts must understand which system change actions are necessary. This requires far more than an understanding of companies’ negative impacts. It ultimately requires an understanding of the whole Earth system and its many environmental and human subsystems. This enables identification of the most important system changes needed, including those that allow full impact mitigation.

Without this understanding, analysts might be fooled by system change greenwashing. As it becomes more widely known that system change is by far the most important sustainability action, companies might attempt to enhance their reputations by portraying themselves as system change leaders. Understanding the most important system changes enables analysts to see through system change greenwashing and accurately assess system change performance. Leading system change performance largely involves focusing unilateral and collaborative system change actions on the most relevant and important system changes needed. This is the standard against which companies are rated.

Beyond system change relevance, focus is another critical aspect of system change rating. The vast majority of system change efforts focus on single issues or components of society. For example, many system change efforts focus on resolving climate change and other environmental and social problems. Many other efforts focus on establishing a sustainable economy, or improving specific economic system components, such as measurement of success or money creation. Narrowly focused system change efforts have produced some benefits. But they have not reversed rapid environmental and social degradation. Myopia is the main reason for this ineffectiveness.

Nothing occurs in isolation in the interconnected whole Earth system and human society. Root causes and most effective solutions often lie outside the issue-specific area. As a result, narrowly focused system change efforts frequently are ineffective because they are not addressing root causes and promoting the most effective solutions. To illustrate, the root cause of global warming is not burning fossil fuels and other human activities that cause atmospheric warming. The root causes are the flawed ideas and systems that drive these unsustainable human actions. Extensive fossil fuel consumption results from flawed economic and political systems that do not hold companies fully responsible for negative impacts. Evolving these systems into sustainable forms will drive rapid reduction in fossil fuel use.

A whole system perspective reveals that the root causes of virtually all major environmental, social, economic and political problems facing humanity are flawed ideas and systems. Going beyond specific issues to address root causes is a hugely efficient and effective process. It can provide substantial progress, not only on specific issues being addressed, but also on nearly all other major problems facing humanity. In other words, one meta-solution (i.e. evolving overarching ideas and systems into sustainable forms) can provide huge benefits in nearly all areas of human society.

Through a whole system approach, many problems would be resolved with little or no issue specific action. For example, if economic systems were evolved into reality-based pricing (i.e. incorporating all real, actual, relevant costs into prices), the climate change issue largely would resolve itself. Fossil fuel consumption would plummet in a reality-based pricing environment, while lower impact technologies rapidly expand.

Using a whole system approach does not mean doing everything at once. This would be impractical and ineffective. A whole system approach greatly increases practicality and effectiveness because it identifies root causes, most effective solutions and key leverage points for system change. In nearly all cases, effective system change requires a whole system focus. Therefore, whole system focused system change efforts generally would receive higher TCR ratings than narrowly focused efforts.

The following table summarizes the TCR model:

TCR combines the most advanced ESG metrics with extensive measurement of mid-level and high-level system change activities and results. The ESG component evaluates management of risks, opportunities and impact mitigation in areas including the environment, product safety, labor, customers, suppliers, communities, government relations and foreign operations.

The mid-level and high-level system change components of TCR assess unilateral and collaborative system change actions, as well as the relevance, focus and results of system change efforts. It is not enough to assess involvement in various system change activities. Additional assessment questions include, are system change efforts strongly promoting sustainability and focused on the most important system changes needed (relevance)? Are they narrowly focused on single issues or broadly focused on the whole system (focus)? And are system change efforts enabling further impact mitigation and providing other environmental and social benefits (results)?

Mid-level system change analysis determines the extent to which companies are working alone or with suppliers and other stakeholders to achieve sector-level, stakeholder-level, and environmental and social issue-level changes. High-level system change analysis measures how companies are interacting with broader society and working alone or with others to evolve overarching systems into sustainable forms.

Assessment questions might include, are companies using campaign finance and lobbying to remove regulations that protect the environment and society, but inhibit ever-increasing shareholder returns? Or are they seeking economic and political changes that require responsible corporate behavior, and thereby make acting responsibly the profit maximizing strategy? Are companies working with industry groups and others to mislead the public about climate change and other issues that threaten short-term shareholder returns? Or are they using advertising and media to raise public awareness about issues that threaten the environment and society?

No company is powerful enough to change overarching systems. Voluntary high-level system change only can be achieved through collaboration. Therefore, TCR extensively analyzes the degree to which companies work with government, civil society and other groups to evolve industry sectors and overarching systems into sustainable forms. Various NPOs, academic leaders and other experts have been advocating economic and political reform for decades. But there is a severe lack of collaborative mechanisms and efforts through which companies and financial institutions can engage in high-level system change. To promote the development of collaborative system change efforts, TCR thoroughly assesses the degree to which companies help to establish and support these efforts.

High-level system change is a young field. We are in the early, pioneering stage of evolving our economic, political and social systems into sustainable forms. The means to achieve necessary system changes often are not clear. Experts have provided numerous suggestions about how to evolve systems into sustainable forms. Many of these system changes are successfully operating on a smaller scale. But large-scale whole system change still eludes us. The main reason for this is the failure to think from the whole system perspective. Many economic, political and social system change ideas do not fully address the whole system. As a result, they often have limited success and sometimes produce unintended consequences. Successful system change requires a whole system approach, such as TCR.

As noted, a growing number of companies are involved in mid-level system change. But few companies are engaged in collaborative high-level system change. Companies with the highest TCR ratings are not perfect. They simply are leading their sectors on conventional and advanced (i.e. system change-focused) CR. A best-in-class rating approach can drive sector-wide improvement in sustainability performance, in part by raising awareness in the financial community and broader society about critical sustainability issues, especially system change. As companies improve sustainability and system change performance, the standards for achieving high TCR ratings become more stringent. This can promote continuous, sector-wide improvement.

Global System Change

One of the most difficult and important aspects of TCR (and system change rating in general) is establishing standards for superior system change performance. This is highly complex because it ultimately requires a whole system perspective. Adequately assessing system change performance requires an understanding of the end state (i.e. a truly sustainable and prosperous human society), major system changes needed to achieve it, barriers to change, and the most effective ways to overcome barriers and achieve successful system change.

A whole system series of books provides this comprehensive perspective. Global System Change: Achieving Sustainability and Real Prosperity, due out in early 2016, summarizes and links together virtually all major issues and aspects of human society, including economic, political, social, environmental, psychological, spiritual and religious. The book puts major environmental, social, economic and political problems in a whole system context, and suggests effective systemic solutions for them.

Global System Change serves as a companion to TCR. By clarifying virtually all major system changes needed to achieve a sustainable and truly prosperous human society, the book helps to establish standards for superior system change performance. This facilitates the production of accurate and effective system change ratings.

Not all necessary system changes are relevant for each company and industry sector. But a whole system perspective nevertheless is necessary to accurately identify the most relevant, sector-specific system changes and leverage points. Focusing only on a particular sector almost certainly would result in failing to identify root causes, optimal solutions and key leverage points that lie outside the sector, but nevertheless are highly relevant to sector-wide sustainability performance.

Beyond overarching system changes, Global System Change extensively describes the most important system changes needed in many sectors, including food production, chemicals, energy, pharmaceuticals and education. By clearly and comprehensively describing important overarching and sector-specific system changes, Global System Change provides a roadmap for mid-level and high-level system change. It also provides the framework and reference points needed for effective TCR and other types of system change rating.

Over the past 50 years, there have been few efforts to link all physical aspects of society (environmental, social, economic, political) and nonphysical aspects (psychological, spiritual, religious) in a clear, detailed, actionable, whole system manner. But this type of work is essential for implementing the system changes needed to achieve sustainability and real prosperity. Without this broader, whole system perspective, we will not be able to voluntarily evolve our grossly flawed, myopic, unsustainable systems into sustainable forms. They will evolve themselves by collapsing. Instead of evolution, we will have revolution and probably great suffering among humanity. Global System Change is intended to model and promote the whole system thinking needed to voluntarily evolve our systems into sustainable forms and maximize the long-term well-being of human society.

Some of the most important systemic solutions discussed in Global System Change include holding companies fully responsible, establishing true democracy and emulating nature. From a business perspective, the most important overarching economic and political system flaw probably is the failure to hold companies fully responsible. This is the mechanism that puts businesses in conflict with society. Failing to hold companies fully responsible for negative impacts makes it impossible to fully mitigate impacts voluntarily. Global System Change describes the major economic and political system components that fail to hold companies responsible. The book explains how TCR and other approaches can be used to evolve systems in non-disruptive ways that hold companies fully responsible, and thereby make acting in a fully responsible manner the profit maximizing strategy.

Our myopic systems often focus on business well-being apart from the well-being of society. This is unintentionally suicidal. It would be like cells in a body focusing on maximizing their own well-being without regard for the larger body that sustains them. When cells in the body do this, the body often is dying of cancer. When businesses seek to maximize their own well-being without regard for the well-being of larger environmental and social systems, it causes humanity to act like a cancer on this planet. We unintentionally kill ourselves.

In reality, businesses are parts of one interconnected whole system. It is not rational to consider the well-being of business apart from the well-being of society. Like individuals, businesses should be free to do whatever they want, provided that they do not degrade society or harm anyone in any way. Evolving systems into forms that hold companies fully responsible for negative impacts will compel companies to act on the reality-based idea that their well-being ultimately is not separate from the well-being of society.

A critical aspect of voluntary high-level system change involves harnessing the power of the people. Corporations are powerful. But all power ultimately resides with citizens collectively. Vested interests often manipulate public opinion in ways that divide and disempower citizens. This can protect short-term profitability and shareholder returns. But it ultimately degrades businesses and society over the mid to long-term, and increasingly in the short-term. An effective whole system approach requires not only suggesting specific economic, political and social system changes. It also requires describing how to unite the people and establish true democracy. This will enable citizens to exercise their ultimate authority and drive high-level system changes that protect business and society over the long-term. Global System Change extensively describes the major actions needed to unite citizens, establish true democracy and evolve human society into a sustainable form.

Perhaps the most important system change principle and overarching solution discussed in Global System Change is emulating nature. Nature displays nearly infinitely greater technological sophistication, coordination, efficiency and prosperity than human society. Nearly all of the systemic solutions needed to achieve sustainability and real prosperity are modeled or implied in nature.

The essentially infinitely greater sophistication of nature shows the vast, untapped potential of humanity. We are part of nature. Therefore, we have the innate potential to achieve the same high level of sophistication and coordination seen in nature. Humanity can be nearly infinitely more sustainable and prosperous than we are now. We only have reached the tiniest fraction of our potential. But myopia often makes it difficult to see this. We compare ourselves to past societies and say that we are advanced and sophisticated. But compared to nature, our supercomputers and other inventions are little more sophisticated than a caveman’s club. Global System Change uses whole system thinking to show how humanity can attain our fullest potential, and explains this in ways that can be easily understood by average, non-expert citizens.

TCR Benefits

Effective communication is a major benefit of TCR. Business leaders who discuss high-level system changes could put their careers and companies at risk. For example, a CEO who discusses the need to shift the measured and managed focus of society from maximizing economic growth to maximizing the actual well-being of society could raise concerns among investors about achieving ever-increasing shareholder returns. This could lower stock prices and cause a CEO to lose their job.

Effectively encouraging the corporate and financial sectors to embrace system change requires using the right types of language and arguments. In reality, flawed systems pose major threats to businesses and investors. But discussing how to evolve these systems into sustainable forms could raise concerns that short-term interests might be threatened. TCR provides language and system change business cases that minimize these concerns. The approach helps corporate and financial sector parties to see that system change is inevitable. It is far better to have a seat at the system change table and help to control the process, rather than have unanticipated changes ruin companies and investments.

It is widely known that proactive sustainability strategies provide many benefits to companies and investors. The same rationale applies to system change. Companies that are proactively involved in mid-level and high-level system change gain many potential financial and competitive benefits. As it becomes known that system change is the most important aspect of sustainability and CR, system change leaders (i.e. those with high TCR ratings) will be seen as the true corporate sustainability leaders and pioneers. They often will attain all the benefits that accrue to current sustainability leaders, such as enhanced reputation, market share and profitability.

One of the most important aspects of TCR is the proxy value for management quality. Extensive research by Innovest Strategic Value Advisors and other organizations shows that corporate sustainability leaders often outperform in the stock market. The main reason for this probably is superior management quality. Most financial analysts would agree that management quality is the primary determinant of profitability and stock market performance. But management quality is intangible. It cannot be measured directly. Profitability can indicate management quality. But many factors affect profits over which management has little or no control.

A good way to measure management quality is to assess how management performs on a complex task, such as sustainability. Superior performance on a complex issue implies that management has the ability to perform well in other business areas, and thereby earn superior financial returns. Sustainability is a complex challenge because management must effectively address many different stakeholder groups, complex environmental and social issues, intangible, long-term, nonfinancial measurement factors, and high levels of technical, market and regulatory uncertainty. Superior management, as indicated by superior sustainability performance, probably is the main reason why sustainability leaders frequently outperform in the stock market.

System change represents an even more complex challenge for management. As noted, no company can unilaterally change overarching systems. Successful system change performance requires superior collaboration, public relations and other skills. As a result, system change performance potentially provides an even better indicator of superior management quality and stock market potential than conventional sustainability performance.

Through the use of TCR ratings, financial institutions can develop SRI products with high outperformance potential. At the same time, TCR products and funds can drive far greater positive environmental and social impacts than any other type of SRI approach. This occurs because the focus of TCR is on system change, by far the most important sustainability issue.

TCR represents the new leading-edge in corporate and financial sector sustainability strategies. To avoid system collapse and achieve sustainability and real prosperity, we must evolve CR into TCR.

Frank Dixon oversaw the sustainability analysis and rating of the world’s 2,000 largest companies for many years as the Managing Director of Research at Innovest Strategic Value Advisors, formerly the largest corporate sustainability research firm in the world. Institutional investors used Innovest research to develop high-performing socially responsible investing products. Extensive corporate sustainability experience made it clear that flawed systems compel all companies to degrade the environment and society. Frank Dixon developed the TCR® approach to provide a practical and profitable way for companies and investors to engage in system change. Following Innovest, he provided sustainability and system change consulting to companies in the US and Europe. Most recently, he wrote the Global System Change series of books. Using a whole system approach, the books identify the major economic, political and social system changes needed to achieve sustainability and real prosperity.